The Lehman Moment Turns Four

“I’ve seen the lights go out on Broadway, I saw the Empire State laid low.”

A month after the 9/11 attacks, stars from the music and entertainment world put on ‘The Concert for New York City’ at Madison Square Garden to an audience of city cops, firemen and EMTs. There were plenty of poignant moments, but the one that really sticks out is when Billy Joel concludes a frighteningly apropos performance of Miami 2017 by saying “I wrote that song twenty five years ago, I thought it was gonna be a science fiction song. I never thought it would really happen.”

It was a maximally surreal moment for all New Yorkers, the idea that the tallest buildings in our skyline were gone and so many of our fellow citizens were gone along with them. The financial world would have it’s own maximally surreal moment a few Septembers later when Lehman Brothers, one of the largest investment banks on the planet, would disappear – dragging the entire global economy into a sinkhole with it. And like Joel’s Miami 2017, a recitation of the events surrounding September 15 2008 is still evocative of another dimension, a science fiction story rather than a historical litany of facts and events.

I’ve unearthed the official New York Times story from the morning Lehman filed for bankruptcy, penned by a pre-television and literary stardom Andrew Ross Sorkin. Let the memories of this day four years ago wash over you:

September 15, 2008

Lehman Files for Bankruptcy; Merrill Is Sold

By ANDREW ROSS SORKIN

This article was reported by Jenny Anderson, Eric Dash and Andrew Ross Sorkin and was written by Mr. Sorkin.

In one of the most dramatic days in Wall Street’s history, Merrill Lynch agreed to sell itself on Sunday to Bank of America for roughly $50 billion to avert a deepening financial crisis, while another prominent securities firm, Lehman Brothers, filed for bankruptcy protection and hurtled toward liquidation after it failed to find a buyer.

The humbling moves, which reshape the landscape of American finance, mark the latest chapter in a tumultuous year in which once-proud financial institutions have been brought to their knees as a result of hundreds of billions of dollars in losses because of bad mortgage finance and real estate investments.

But even as the fates of Lehman and Merrill hung in the balance, another crisis loomed as the insurance giant American International Group appeared to teeter. Staggered by losses stemming from the credit crisis, A.I.G. sought a $40 billion lifeline from the Federal Reserve, without which the company may have only days to survive.

The stunning series of events culminated a weekend of frantic around-the-clock negotiations, as Wall Street bankers huddled in meetings at the behest of Bush administration officials to try to avoid a downward spiral in the markets stemming from a crisis of confidence.

“My goodness. I’ve been in the business 35 years, and these are the most extraordinary events I’ve ever seen,” said Peter G. Peterson, co-founder of the private equity firm the Blackstone Group, who was head of Lehman in the 1970s and a secretary of commerce in the Nixon administration.

It remains to be seen whether the sale of Merrill, which was worth more than $100 billion during the last year, and the controlled demise of Lehman will be enough to finally turn the tide in the yearlong financial crisis that has crippled Wall Street and threatened the broader economy.

Early Monday morning, Lehman said it would file for Chapter 11 bankruptcy protection in New York for its holding company in what would be the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago, the Associated Press reported.

Questions remain about how the market will react Monday, particularly to Lehman’s plan to wind down its trading operations, and whether other companies, like A.I.G. and Washington Mutual, the nation’s largest savings and loan, might falter.

My friend the Lehman sales trader packed his stuff up that Monday, September 15th and headed home from the company’s gleaming Times Square hood ornament of an HQ with only vague ideas of what he might do the next day. As it would turn out, Barclays would soon after swoop in post-bankruptcy and keep huge chunks of the Lehman franchise intact. My friend was summoned back in to cover his existing hedge fund relationships for the new company, like thousands of other ex-Brothers who ended up seeing very little change in their day to day jobs.

(image above from The Guardian)

I remember waking around midtown Manhattan that September, it truly felt like a ghost town. Everyone thought their company would be next, from bankers to insurance people to real estate brokers and developers. When everyone’s employer’s stock price is trading sub-ten dollars, it’s amazing how little eye contact New Yorkers make with each other. It is this apocalyptic ambiance that, in part, drives a young broker named Josh Brown to register a WordPress account and a domain name two weeks later as a place to vent and commune with his fellow survivors online.

And here we are, four years later, with the credit markets functioning, stability in most major housing markets and the S&P 500 within grasping distance of its 2007 highs. The Lehman Moment continues to loom large, both in our memories of the era and as a reference point for virtually everyone who’s in business or invests their capital – “How did this portfolio hold up during Lehman?” or “What’s the return since Lehman?” are two of the most common questions I’ll get as a professional asset manager to this day.

Today the Lehman Moment turns four. We’ve come a long way since but its impact remains unshakeable, its legacy is still being written in everything we do and have done since.